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R&D intensity, firm performance and the identification of the threshold: fresh evidence from the panel threshold regression model

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  • Ming-Liang Yeh
  • Hsiao-Ping Chu
  • Peter Sher
  • Yi-Chia Chiu

Abstract

This article tests whether there is an optimal level of research and development (R&D) intensity at which point a firm is able to maximize its performance. An advanced panel threshold regression model is employed to investigate the panel threshold effect of R&D intensity on firm performance among publicly traded Taiwan information technology and electronic firms. The results confirm that a single-threshold effect does exist and show an inverted-U correlation between R&D intensity and firm performance. This article demonstrates that it is possible to identify the definitive level beyond which a further increase in R&D expenditure does not yield proportional rewards. Some important policy implications emerge from the findings.

Suggested Citation

  • Ming-Liang Yeh & Hsiao-Ping Chu & Peter Sher & Yi-Chia Chiu, 2010. "R&D intensity, firm performance and the identification of the threshold: fresh evidence from the panel threshold regression model," Applied Economics, Taylor & Francis Journals, vol. 42(3), pages 389-401.
    • Handle: RePEc:taf:applec:v:42:y:2010:i:3:p:389-401
    DOI: 10.1080/00036840701604487
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